———————
———————
(Mark one)
þ Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 193410-Q
(Mark one) | |
þ | Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
2010
¨ Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
o | Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
———————
MERA PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
———————
Delaware
(State or other jurisdiction of incorporation or organization)
04-3683628
(IRS Employer Identification Number)
MERA PHARMACEUTICALS, INC. |
(Exact name of Registrant as specified in its charter) |
Delaware | 04-3683628 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NOo | |||
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. YES þ NO o | |||
547,769,915 shares of $0.0001 par value common stock outstanding as of April 30, 2010 80 shares of $0.0001 par value Series A preferred stock outstanding as of April 30, 2010 974 shares of $0.0001 par value Series B preferred stock outstanding as of April 30, 2010 |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO ¨
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. YES þ NO ¨
547,769,915 shares of $0.0001 par value common stock outstanding as of April 30, 2009
80 shares of $0.0001 par value Series A preferred stock outstanding as of April 30, 2009
974 shares of $0.0001 par value Series B preferred stock outstanding as of April 30, 2009
10-Q
2010
Contents
Page | ||||
Part I - Financial Information | ||||
Item | ||||
Condensed Balance Sheet | 1 | |||
Condensed Statements of Operations | 2 | |||
Condensed Statements of Cash Flows | 3 | |||
Notes to Condensed Financial Statements | 4 | |||
Item | 8 | |||
Management's Discussion and Analysis of Financial Condition and Results of Operations | 8 | |||
Item 3. | 10 | |||
Part II - Other Information | ||||
Item | 11 | |||
Item | 11 | |||
Item 3. | 11 | |||
Item | 11 | |||
Item | 11 | |||
Item | 12 | |||
Signature | 13 | |||
Certifications |
PART
ITEM 1.
FINANCIAL STATEMENTS
(Unaudited)
|
| April 30, |
|
| October 31, 2008 |
| ||
|
| (Unaudited) |
|
| (Audited) |
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 82,300 |
|
| $ | 19,288 |
|
Marketable equitable securities |
|
| 14,408 |
|
|
| 34,400 |
|
Accounts receivable |
|
| 3,515 |
|
|
| 11,007 |
|
Tax credit receivable |
|
| 45,427 |
|
|
| –– |
|
Prepaid expenses and other current assets |
|
| 7,621 |
|
|
| 48,580 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
| 153,271 |
|
|
| 113,275 |
|
|
|
|
|
|
|
|
|
|
Plant and equipment, net |
|
| 267,618 |
|
|
| 281,439 |
|
|
|
|
|
|
|
|
|
|
Total Assets |
| $ | 420,889 |
|
| $ | 394,714 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 316,401 |
|
| $ | 283,590 |
|
Notes payable - related parties |
|
| 51,936 |
|
|
| 51,936 |
|
Other current liabilities |
|
| –– |
|
|
| 5,412 |
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
| 368,337 |
|
|
| 340,938 |
|
|
|
|
|
|
|
|
|
|
Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Convertible preferred stock, $.0001 par value, 10,000 |
|
| 2 |
|
|
| 2 |
|
Common stock, $.0001 par value: 750,000,000 |
|
| 54,777 |
|
|
| 54,777 |
|
Additional paid-in capital |
|
| 7,920,003 |
|
|
| 7,920,003 |
|
Treasury stock at cost |
|
| (2,025 | ) |
|
| (2,025 | ) |
Accumulated deficit |
|
| (7,920,205 | ) |
|
| (7,918,981 | ) |
Total stockholders' equity |
|
| 52,552 |
|
|
| 53,776 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity |
| $ | 420,889 |
|
| $ | 394,714 |
|
April 30, 2010 | October 31, 2009 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 3,200 | $ | 3,135 | ||||
Accounts receivable | 13,615 | 6,656 | ||||||
Tax credit receivable | 41,790 | 31,229 | ||||||
Prepaid expenses and other current assets | 7,983 | 15,994 | ||||||
Total current assets | 66,588 | 57,014 | ||||||
Plant and equipment, net | 339,334 | 200,482 | ||||||
Total Assets | $ | 405,922 | $ | 257,496 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 302,847 | $ | 181,040 | ||||
Accrued expenses | 161,458 | 133,172 | ||||||
Notes payable - related parties | 51,936 | 51,936 | ||||||
Deferred revenue | 123,950 | 30,450 | ||||||
Total Current Liabilities | 640,191 | 396,598 | ||||||
Contingencies | ||||||||
Stockholders' equity: | ||||||||
Convertible preferred stock, $.0001 par value, 10,000 | ||||||||
shares authorized, 80 Series A shares issued and | ||||||||
outstanding and 974 Series B shares issued and | ||||||||
outstanding | 2 | 2 | ||||||
Common stock, $.0001 par value: 750,000,000 | ||||||||
shares authorized, 547,769,915 shares issued | ||||||||
and outstanding | 54,777 | 54,777 | ||||||
Additional paid-in capital | 7,920,003 | 7,920,003 | ||||||
Treasury stock at cost | (2,025 | ) | (2,025 | ) | ||||
Accumulated deficit | (8,207,026 | ) | (8,111,859 | ) | ||||
Total stockholders' deficit | (234,269 | ) | (139,102 | ) | ||||
Total Liabilities and Stockholders' Equity | $ | 405,922 | $ | 257,496 |
|
| Three Months |
|
| Three Months |
|
| Six Months |
|
| Six Months |
| ||||
|
| Ended |
|
| Ended |
|
| Ended |
|
| Ended |
| ||||
|
| April 30, 2009 |
|
| April 30, 2008 |
|
| April 30, 2009 |
|
| April 30, 2008 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
NET SALES |
|
| 206,762 |
|
|
| 152,057 |
|
|
| 394,699 |
|
|
| 282,228 |
|
Cost of Goods Sold |
|
| 1,937 |
|
|
| 6,732 |
|
|
| 2,389 |
|
|
| 12,796 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
| 204,825 |
|
|
| 145,325 |
|
|
| 392,310 |
|
|
| 269,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development costs |
|
| 72,788 |
|
|
| 68,249 |
|
|
| 169,459 |
|
|
| 119,316 |
|
Selling, general and administrative |
|
| 93,394 |
|
|
| 79,145 |
|
|
| 194,417 |
|
|
| 207,045 |
|
Depreciation and Amortization |
|
| 21,607 |
|
|
| 72,157 |
|
|
| 43,215 |
|
|
| 144,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
| 187,789 |
|
|
| 219,551 |
|
|
| 407,091 |
|
|
| 470,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
| 17,036 |
|
|
| (74,226 | ) |
|
| (14,781 | ) |
|
| (201,243 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
| �� |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 258 |
|
|
| 26 |
|
|
| 1,629 |
|
|
| 153 |
|
Other income |
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| 8,783 |
|
Gains on sale of marketable equitable securities |
|
| 746 |
|
|
| –– |
|
|
| 746 |
|
|
| –– |
|
Interest expense |
|
| (1,252 | ) |
|
| (2,442 | ) |
|
| (2,533 | ) |
|
| (4,883 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
| (248 | ) |
|
| (2,416 | ) |
|
| (158 | ) |
|
| 4,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income tax provision |
|
| 16,788 |
|
|
| (76,642 | ) |
|
| (14,939 | ) |
|
| (197,190 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense |
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| –– |
|
Refundable tax credit |
|
| 6,133 |
|
|
| 4,028 |
|
|
| 13,714 |
|
|
| 9,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 22,921 |
|
| $ | (72,614 | ) |
| $ | (1,225 | ) |
| $ | (188,047 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share - basic and diluted |
| $ | 0.00 |
|
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
Weighted average shares outstanding - |
|
| 547,769,915 |
|
|
| 510,369,915 |
|
|
| 547,769,915 |
|
|
| 510,369,915 |
|
basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months | Three Months | Six Months | Six Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
April 30, 2010 | April 30, 2009 | April 30, 2010 | April 30, 2009 | |||||||||||||
NET SALES | $ | 61,413 | $ | 206,762 | $ | 157,628 | $ | 394,699 | ||||||||
Cost of Goods Sold | 9,095 | 1,937 | 10,401 | 2,389 | ||||||||||||
GROSS PROFIT | 52,318 | 204,825 | 147,227 | 392,310 | ||||||||||||
Costs and Expenses | ||||||||||||||||
Research and development costs | 70,474 | 72,788 | 133,406 | 169,459 | ||||||||||||
Selling, general and administrative | 56,491 | 93,394 | 107,238 | 194,417 | ||||||||||||
Depreciation and Amortization | 6,824 | 21,607 | 11,149 | 43,215 | ||||||||||||
Total costs and expenses | 133,789 | 187,789 | 251,793 | 407,091 | ||||||||||||
Operating profit (loss) | (81,471 | ) | 17,036 | (104,566 | ) | (14,781 | ) | |||||||||
Other income (expense): | ||||||||||||||||
Interest income | - | 258 | - | 1,629 | ||||||||||||
Other income | - | - | 1,333 | - | ||||||||||||
Gains on sale of marketable equitable securities | - | 746 | - | 746 | ||||||||||||
Interest expense | (1,248 | ) | (1,252 | ) | (2,496 | ) | (2,533 | ) | ||||||||
Total other income (expense) | (1,248 | ) | (248 | ) | (1,163 | ) | (158 | ) | ||||||||
Net income (loss) before income tax provision | (82,719 | ) | 16,788 | (105,729 | ) | (14,939 | ) | |||||||||
Tax expense | - | - | - | - | ||||||||||||
Refundable tax credit | 4,941 | 6,133 | 10,561 | 13,714 | ||||||||||||
Net income (loss) | $ | (77,778 | ) | $ | 22,921 | $ | (95,168 | ) | $ | (1,225 | ) | |||||
Income (loss) per share - basic and diluted | (0.0001 | ) | 0.0000 | (0.0002 | ) | (0.0000 | ) | |||||||||
Weighted average shares outstanding - basic and diluted | 547,769,915 | 547,769,915 | 547,769,915 | 547,769,915 | ||||||||||||
|
| Six Months |
|
| Six Months |
| ||
|
| Ended |
|
| Ended |
| ||
|
| April 30, 2009 |
|
| April 30, 2008 |
| ||
Cash Flows from Operating Activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (1,225 | ) |
| $ | (188,047 | ) |
Adjustments to reconcile net loss to net cash |
|
|
|
|
|
|
|
|
used in operating activities: |
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization |
|
| 43,216 |
|
|
| 144,314 |
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 7,492 |
|
|
| 4,767 |
|
Tax credit receivable |
|
| (13,714 | ) |
|
| (9,143 | ) |
Prepaid expenses and other current assets |
|
| 9,246 |
|
|
| (16,873 | ) |
Accounts payable and accrued liabilities |
|
| 27,399 |
|
|
| 28,467 |
|
Net cash provided (used) by operating activities |
|
| 72,414 |
|
|
| (36,515 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Purchases of marketable equitable securities |
|
| (14,408 | ) |
|
| –– |
|
Proceeds from sales of marketable equitable securities |
|
| 34,400 |
|
|
| –– |
|
Purchases of fixed assets |
|
| (29,394 | ) |
|
|
|
|
Net cash used by investing activities |
|
| (9,402 | ) |
|
| –– |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from related party notes payable |
|
| –– |
|
|
| 110,700 |
|
Payment of related party notes payable |
|
| –– |
|
|
| (74,100 | ) |
Net cash provided by financing activities |
|
| –– |
|
|
| 36,600 |
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
| 63,012 |
|
|
| 85 |
|
Cash and cash equivalents, beginning of the period |
|
| 19,288 |
|
|
| 12,704 |
|
Cash and cash equivalents, end of the period |
| $ | 82,300 |
|
| $ | 12,789 |
|
Six Months | Six Months | |||||||
Ended | Ended | |||||||
April 30, 2009 | April 30, 2009 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss | $ | (95,168 | ) | $ | (1,225 | ) | ||
Adjustments to reconcile net loss to net cash | ||||||||
used in operating activities: | ||||||||
Accumulated depreciation and amortization | 11,149 | 43,216 | ||||||
Changes in assets and liabilities | ||||||||
Accounts receivable | (6,959 | ) | 7,492 | |||||
Tax credit receivable | (10,561 | ) | (13,714 | ) | ||||
Prepaid expenses and other current assets | 8,011 | 9,246 | ||||||
Accounts payable and accrued liabilities | 150,093 | 27,399 | ||||||
Deferred revenue | 93,500 | - | ||||||
Net cash provided (used) by operating activities | 150,065 | 72,414 | ||||||
Cash Flows from Investing Activities: | ||||||||
Purchases of marketable equitable securities | - | (14,408 | ) | |||||
Proceeds from sales of marketable equitable securities | - | 34,400 | ||||||
Prepaid construction costs | - | |||||||
Purchases of fixed assets | (150,000 | ) | (29,394 | ) | ||||
Net cash used by investing activities | (150,000 | ) | (9,402 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from related party notes payable | - | - | ||||||
Payment of related party notes payable | - | - | ||||||
Net cash provided by financing activities | - | - | ||||||
Net increase in cash and cash equivalents | 65 | 63,012 | ||||||
Cash and cash equivalents, beginning of the period | 3,135 | 19,288 | ||||||
Cash and cash equivalents, end of the period | $ | 3,200 | $ | 82,300 |
NOTES TO
1. | Basis of Presentation of Financial Statements |
2.
2. | Going Concern. |
3. | Related Party Transactions. |
3.
Employers’ Disclosures about Postretirement Benefit Plan Assets
Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises
In December 2008, the FASB issued FSP FIN No. 48-3, “Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises.” FSP FIN No. 48-3 defers the effective date of FIN No. 48, “Accounting for Uncertainty in Income Taxes,” for certain nonpublic enterprises as defined in SFAS No. 109, “Accounting for Income Taxes.” However, nonpublic consolidated entities of public enterprises that apply U.S. generally accepted accounting principles (GAAP) are not eligible for the deferral.FSP FIN No. 48-3 was effective upon issuance. The impact of adoption was not material to the Company’s financial condition or results of operations.
4
MERA PHARMACEUTICALS
NOTES TO CONDENSED FINANCIAL STATEMENTS
Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities
In December 2008, the FASB issued FSP FAS No. 140-4 and FIN No. 46(R) -8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.” This FSP amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” to require public entities to provide additional disclosures about transfers of financials assets. FSP FAS No. 140-4 also amends FIN No. 46(R)-8, “Consolidation of Variable Interest Entities,” to require public enterprises, including sponsors that have a variable interest entity, to provide additional disclosures about their involvement with a variable interest entity. FSP FAS No. 140-4 also requires certain additional disclosures, in regards to variable interest entities, to provide greater transparency to financial statement users. FSP FAS No. 140-4 is effective for the first reporting period (interim or annual) ending after December 15, 2008, with early application encouraged. The impact of adoption was not material to the Company’s financial condition or results of operations.
Accounting for an Instrument (or an Embedded Feature) with a Settlement Amount That is Based on the Stock of an Entity’s Consolidated Subsidiary
In November 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue No. 08-8, “Accounting for an Instrument (or an Embedded Feature) with a Settlement Amount That is Based on the Stock of an Entity’s Consolidated Subsidiary.” EITF No. 08-8 clarifies whether a financial instrument for which the payoff to the counterparty is based, in whole or in part, on the stock of an entity’s consolidated subsidiary is indexed to the reporting entity’s own stock. EITF No. 08-8 also clarifies whether or not stock should be precluded from qualifying for the scope exception of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” or from being within the scope of EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” EITF No. 08-8 is effective for fiscal years be ginning on or after December 15, 2008, and interim periods within those fiscal years. The impact of adoption was not material to the Company’s financial condition or results of operations.
Accounting for Defensive Intangible Assets
In November 2008, the FASB issued EITF Issue No. 08-7, “Accounting for Defensive Intangible Assets.” EITF No. 08-7 clarifies how to account for defensive intangible assets subsequent to initial measurement. EITF No. 08-7 applies to all defensive intangible assets except for intangible assets that are used in research and development activities. EITF No. 08-7 is effective for intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact of adoption was not material to the Company’s financial condition or results of operations.
Equity Method Investment Accounting Considerations
In November 2008, the FASB issued EITF Issue No. 08-6 (“EITF No. 08-6”), “Equity Method Investment Accounting Considerations.” EITF No. 08-6 clarifies accounting for certain transactions and impairment considerations involving the equity method. Transactions and impairment dealt with are initial measurement, decrease in investment value, and change in level of ownership or degree of influence. EITF No. 08-6 is effective on a prospective basis for fiscal years beginning on or after December 15, 2008. The impact of adoption was not material to the Company’s financial condition or results of operations.
Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active
In October 2008, the FASB issued FSP FAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active.” This FSP clarifies the application of SFAS No. 157, “Fair Value Measurements,” in a market that is not active. The FSP also provides examples for determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS No. 157-3 was effective upon issuance, including prior periods for which financial statements have not been issued. The impact of adoption was not material to the Company’s financial condition or results of operations.
5
MERA PHARMACEUTICALS
NOTES TO CONDENSED FINANCIAL STATEMENTS
Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement
In September 2008, the FASB issued EITF Issue No. 08-5 (“EITF No. 08-5”), “Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement.” This FSP determines an issuer’s unit of accounting for a liability issued with an inseparable third-party credit enhancement when it is measured or disclosed at fair value on a recurring basis. FSP EITF No. 08-5 is effective on a prospective basis in the first reporting period beginning on or after December 15, 2008. The impact of adoption was not material to the Company’s financial condition or results of operations.
Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161
In September 2008, the FASB issued FSP FAS No. 133-1, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161.” This FSP amends FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” to require disclosures by sellers of credit derivatives, including credit derivatives embedded in a hybrid instrument. The FSP also amends FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” to require and additional disclosure about the current status of the payment/performance risk of a guarantee. Finally, this FSP clarifies the Board’s intent about the effective date of FASB Statement No. 161, “Disclosures a bout Derivative Instruments and Hedging Activities.” FSP FAS No. 133-1 is effective for fiscal years ending after November 15, 2008. The impact of adoption was not material to the Company’s financial condition or results of operations.
Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for all Endowment Funds
In August 2008, the FASB issued FSP FAS No. 117-1, “Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”), and Enhanced Disclosures for all Endowment Funds.” The intent of this FSP is to provide guidance on the net asset classification of donor-restricted endowment funds. The FSP also improves disclosures about an organization’s endowment funds, both donor-restricted and board-designated, whether or not the organization is subject to the UPMIFA. FSP FAS No. 117-1 is effective for fiscal years ending after December 31, 2008. Earlier application is permitted provided that annual financial statements for that fiscal year have not been previously issued. The impact of adoption was not material to the Company’s financial condition or results of operations.
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
In June 2008, the FASB issued EITF Issue No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” EITF No. 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. The EITF 03-6-1 affects entities that accrue dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the award. EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of EITF 03-6-1 on its financial position and results of operations.
Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an entity's Own Stock
In June 2008, the FASB ratified EITF Issue No. 07-5, "Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock.” EITF 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument's contingent exercise and settlement provisions. It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of EITF 07-5 on its financial position and results of operations.
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MERA PHARMACEUTICALS
NOTES TO CONDENSED FINANCIAL STATEMENTS
Accounting for Financial Guarantee Insurance Contracts—an interpretation of FASB Statement No. 60
In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts – an interpretation of FASB Statement No. 60”. This statement requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. SFAS No. 163 also clarifies how SFAS No. 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities to increase comparability in financial reporting of financial guarantee insurance contracts by insurance enterprises. SFAS No. 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, except for some disclosures about the insurance enterprise& #146;s risk-management activities of the insurance enterprise be effective for the first period (including interim periods) beginning after issuance of SFAS No. 163. The impact of adoption was not material to the Company’s financial condition or results of operations.
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
In May 2008, the FASB issued FSP Accounting Principles Board (“APB”) Opinion No. 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. The FSP requires issuers to account separately for the liability and equity components of certain convertible debt instruments in a manner that reflects the issuer's nonconvertible debt (unsecured debt) borrowing rate when interest cost is recognized. The FSP requires bifurcation of a component of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as part of interest expense in our consolidated statement of operations. The FSP requires retrospective application to the terms of instrum ents as they existed for all periods presented. The FSP is effective for fiscal years beginning after December 15, 2008 and early adoption is not permitted. The Company is currently evaluating the potential impact of FSP APB 14-1 upon its financial statements.
The Hierarchy of Generally Accepted Accounting Principles
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles". The implementation of this standard will not have a material impact on the Company's financial position and results of operations.
Determination of the Useful Life of Intangible Assets
In April 2008, the FASB issued FSP FAS No. 142-3, “Determination of the Useful Life of Intangible Assets”, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets under SFAS No. 142 “Goodwill and Other Intangible Assets”. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of the expected cash flows used to measure the fair value of the asset under SFAS No. 141 (revised 2007) “Business Combinations” and other U.S. generally accepted accounting principles. The impact of adoption was not material to the Company’s financial condition or results of operations.
Disclosure about Derivative Instruments and Hedging Activities
In March 2008, the FASB issued SFAS No. 161,“Disclosure about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133.” This statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. The Company is required to adopt SFAS No. 161 on January 1, 2009. The impact of adoption was not material to the Company’s financial condition or results of operations.
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MERA PHARMACEUTICALS
NOTES TO CONDENSED FINANCIAL STATEMENTS
Delay in Effective Date
In February 2008, the FASB issued FSP FAS No. 157-2, “Effective Date of FASB Statement No. 157”. This FSP delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The impact of adoption was not material to the Company’s financial condition or results of operations.
Business Combinations
In December 2007, the FASB issued SFAS No. 141(R) “Business Combinations.” This Statement replaces the original SFAS No. 141. This Statement retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting (which SFAS No. 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. The objective of SFAS No. 141(R) is to improve the relevance, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. To accomplish that, SFAS No. 141(R) establishes principles and requirements for how the acquirer:
a.
Recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree.
b.
Recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase.
c.
Determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.
This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 and may not be applied before that date. The impact of adoption was not material to the Company’s financial condition or results of operations.
Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51
In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51.” This Statement amends the original Accounting Review Board (ARB) No. 51 “Consolidated Financial Statements” to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008 and may not be applied before that date. The Company is unable at this time to determine the effect that its adoption of SFAS No. 160 will have on its results of operations and financial conditio n.
Fair Value Option for Financial Assets and Financial Liabilities
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of SFAS No. 115,” which becomes effective for the Company on February 1, 2008, permits companies to choose to measure many financial instruments and certain other items at fair value and report unrealized gains and losses in earnings. Such accounting is optional and is generally to be applied instrument by instrument. The election of this fair-value option did not have a material effect on its financial condition, results of operations, cash flows or disclosures.
4.
Material Agreements
The Company receives licensing income under a license agreement with HR BioPetroleum, Inc (HRBP) that was signed in fiscal 2007. The agreement calls for the Company to receive $22,000 per month and grants HRBP access and use of the Companies facilities to perform a research project relating to large-scale cultivation and production of certain microalgae species, and grants HRBP license rights to a patent and other intellectual property owned by the Company. On January 9, 2009, the Company was informed that HRBP would not be renewing such license agreement. Unless a new agreement can be negotiated revenues received under this agreement will cease effective July 8, 2009.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2009. The revenue decline was partially attributable to the ending of the HRBioPetroleum agreement which ended on June 8, 2009. Product sales of AstaFactor and Kona Sea Salt decreased to $61,413 versus $96,215 in the comparable periods, an decrease of 36.2%
Research and Development Costs.Research and development costs increased to $72,788 for the quarter ending April 30, 31, 2009 versus $68,249 for the quarter ending April 30, 2008, an increase of approximately 6.7%3.2%. The increasedecrease was due to the winding down of costs associated with the conclusion of the Company’s technical service agreement and shift of personnel to work on research for the service agreement project with HRBioPetroleum.
introduction of future new products.
20092010 versus 2008,2009, interest expense was $1,252$1,248 and $2,442,$1,248, respectively. This decrease was due to a lower level of borrowing by the Company during the second quarter of 2009 compared to the second quarter of 2008.
CONTROLS AND PROCEDURES
LEGAL PROCEEDINGS
CHANGES IN SECURITIES
DEFAULTS UPON SENIOR SECURITIES
OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8-K
None.
a.
EXHIBITS
Certification of Chief Executive Officer pursuant to Rule 13a – 14 (a) of the Securities Exchange Act of 1934 (filed herewith electronically).
Certification of Principal Financial and Accounting Officer pursuant to Rule 13a – 14 (a) of the Securities Exchange Act of 1934 (filed herewith electronically).
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith electronically).
Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002 (filed herewith electronically)
b.
REPORTS ON FORM 8-K
None.
Certification of Chief Executive Officer pursuant to Rule 13a – 14 (a) of the Securities Exchange Act of 1934 (filed herewith electronically). |
Certification of Principal Financial and Accounting Officer pursuant to Rule 13a – 14 (a) of the Securities Exchange Act of 1934 (filed herewith electronically). |
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith electronically). |
Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002 (filed herewith electronically) |
MERA PHARMACEUTICALS, INC. | ||||
Dated: June | By: |
| /s/ | |
Gregory F. Kowal | ||||
Gregory F. Kowal | ||||
Chief Executive Officer |
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